SIX DUMB REASONS TO GET ANOTHER CREDIT CARD AND ONE GREAT ONE
Australians have over 15 million credit cards and use them more than 11 times a month to spend a total of $18 billion between us. All up we spend an average of $15 859 each on credit cards every year and carry an average balance of $3 151.
Over half a million of us carry more than $5 000 in credit card debt. So why would you need another credit card?
We are constantly bombarded with offers for new credit cards, so (inspired by that ad for rail safety in Victoria) here are:
SIX DUMB REASONS TO GET ANOTHER CREDIT CARD
1. You like/want instant gratification
Retailers know we find it hard to resist a good deal. That’s why they often catch us right at the checkout and tell us just how much we can save if we only accept their offer of a new credit card through their store.
This story rarely ends well. Few customers can take the time to carefully review the offer in that environment. The interest rates and fees, on this type of cards tend to be higher than on other credit cards and can be eye watering.
To be fair, some of the perks like discounts or frequent flyer miles can be beneficial— but only if you pay off the balance every month, and don’t use the rewards as an excuse to splurge.
Take your time – don’t ever sign up on the spot. Remember every application will leave a trail on your credit report which could mean you miss out on a loan when you really need it.
2. You don’t look at your bills carefully
I’m a big fan of automating my bills so that I never miss a payment and get whacked with those nasty late fees. But this is no excuse to not look at your bills. It’s a good idea to set aside time each month to go through your bills even those that get paid automatically. This lets you identify errors, potentially fraudulent transactions as well as any sneaky charges or changes to fees by the issuer.
If you’re not looking at the bills you’ve got you sure don’t want to go adding another one.
3. You want your picture on the card
Have you seen the new credit cards that you can customise with your choice of photo or image? This is a financial innovation I just don’t get. Any photo that you could ever want is just a tap or a swipe away on your smartphone. Why, then, do you need one stuck on your credit card?
If you have a card in your wallet that sports a picture that makes you happy, you’re so much more likely to pull it out. Not good.
If you must have a customised card, pick an image that will scare the hell out of you. It seems to do the trick for cigarettes!
But seriously.. why?
4. You want a big purchase now
If you want that new card just to buy that big 'thing', chances are that you can't really afford it; let that be your guide.
When you open a new card, you borrow more money, it's that simple. More than that, you borrow at the highest interest rates around, AND you inflate your spending (read, debt) beyond your capacity to pay for it comfortably.
If you don't have the cash for it today, chances are you won't have it on the day your credit card bill arrives either.
5. You forgot your login details
I’ve heard this one many times. If this is why you need a new card, you're definitely headed for a financial pitfall. If you already have trouble remembering login details, getting another card is addressing the wrong problem!
A phone call or email can recover forgotten usernames and passwords. That small hassle now, is a lot less hassle than the extra months or years of slavery to your new card balance.
6. You want to give one to your adult child
If you have raised your child to be smart about money, do really want to test them with this kind of temptation? Remember, you're the one who will end up with debt that isn't paid.
A prepaid debit card may be a smarter alternative for those times when you just can’t do stuff without a credit card.
ONE GOOD REASON TO GET A NEW CREDIT CARD
On 1 July 2012, a number of changes to the laws governing credit cards in Australia came into effect. Some of the most important ones only apply to new credit card contracts. So if you've had your current card since June 2012 or before, i suggest replacing it. Here's why:
Your payments will now be applied against the most expensive debt first, making it easier to pay off your balance quicker. Previously, credit card companies applied your payments against the lowest interest rate items first (like balance transfers) so you ended up paying more interest.
Over-limit fees have been banned unless you specifically agree that your lender can charge you a fee for the service. If you don’t agree they will generally not approve charges that would take you over your limit.
The credit card issuer must notify when you have hit your credit limit so you can decide whether to keep using your card or whether to make a payment to reduce your balance.
These changes can be a real help. Ask your card issuer whether they have volunteered to apply these rules to your old card. If the answer is no, then it might be time to get a new one.
Vince Scully | LifeSherpa
With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Vince founded the Calliva Group; a fund manager, product issuer, advisor and lender to Government and private clients. Vince is an advisor to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie bank’s infrastructure team.